February 24, 2020

Why do some entrepreneurs earn more than others?

Justin Jackson @mijustin

It's fascinating to me that two entrepreneurs can put in the same amount of effort, but get very different revenue outcomes.

What factors do you think makes the biggest difference when it comes to earning more revenue?

  1. 59

    From what I've seen, the biggest differentiator is solving a valuable problem. There are some problems that people are just inherently willing to pay lots of money to solve. Consumers spend a lot on education and training geared toward landing them better jobs. Businesses pay a lot to find and hire employees, and for growth and marketing. Etc.

    I'd rather spend 15 hours a week helping businesses hire employees (like Key Values does) than spend 40 hours a week building to-do list software for consumers. Consumers aren't going to pay you a lot for to-do list software no matter how good it is.

    Solving valuable problems has an absurd number of advantages:

    • You can charge more per customer, which opens up distribution channels that aren't available to many other companies. You can suddenly afford to grow by doing easy-but-expensive things like sales and ads, rather than relying on extremely hard things like successful content marketing, viral growth, or SEO.
    • Finding fewer customers means you'll grow faster, too. Charging $250/month vs $5/mo is the difference between finding 40 customers and 2000 customers. Finding 40 customers is waaayyyyy faster. 2000 customers might take years.
    • Qualitatively, customers care more about valuable problems, so it's just an easier sell. You don't have to convince a company that it should grow its revenue. You don't have to convince a person that they should learn new skills and get better jobs. These are easy sells. It's counterintuitive, but things that are cheap are often harder to sell to people, because they just don't care that much, otherwise those things would be expensive. (There are exceptions. For example, some valuable things are cheap purely due to commoditization from competition, e.g. water.)
    • etc.

    Yet founders often intentionally shy away from solving valuable problems!

    Some think: "It'll be easier to sell things if my product is cheap." Rarely the case, because as I mentioned above, cheap = not valuable = people don't care. You should not be competing on price as an indie hacker, anyway. You can't afford to. Mom and pop shops are more expensive than big-brand stores for a reason.

    Some think: "It'll be easier if I don't have competition, so I'll solve some unique problem nobody's ever solved." It's true you want to avoid serious competition, but imo you should do this by niching down and/or building a unique product, not by solving a unique problem. Most valuable problems have been discovered already. Most unsolved problems are unsolved because they aren't valuable to solve. Generally, most "innovative" ideas are solving old, boring, tried-and-true problems in a new way, due to new research, or new technology platforms, new trends, new customers entering the market, etc.

    It's better to think: "Let me pick some problem that's proven to be valuable as evidenced by the fact that people/companies are paying a lot to solve it. Then I'll dig into customers' needs to find out what they don't like about existing solutions, or what niche isn't best-served by existing solutions. Then I'll build something extremely specific to that set of needs, so for people who have those needs, I'm the only real solution."

    Not the only way to win, but imo, the best.

    1. 9

      🎯

      Who wants this today?
      How much will they pay?
      How many of them are there?
      At what frequency do they make this purchase?

      1. 9

        A few questions that, if indie hackers took the time to ask them, might prevent years of pain and frustration.

    2. 2

      Thanks this is very helpful to me as I’m still at the idea stage. It has me thinking of the myriad tech tools we shell out money for at work: github, appveyor, npm etc. Maybe those are a good starting point to see what their weaknesses are.

    3. 1

      this comment is gold

      1. 1

        I wish someone would create an IH account that just reposts @csallen comments as actual posts so I could follow that account to get these nuggets of wisdom.

  2. 5

    Who your customers are. Some people just have a lot more money to pay!

    I'll most likely make a lot more money making software for dentists than software for Janitors(Nothing against janitors).

  3. 3

    Money is measured by real or perceived value someone derives from a service or product. Someone is willing to do something for someone in order to get someone else to do something for them, money is only the intermediary tool used to facilitate trade and has no intrinsic value.

    The very premise of the question implies that because there is a correlation between the amount of effort that something takes and how much it costs (Something that is hard to do costs more) that this implies causation. This is an example of a questionable-cause logical fallacy, in which two events occurring together are taken to have established a cause-and-effect relationship.

    https://en.wikipedia.org/wiki/Correlation_does_not_imply_causation

    Here is a ridiculous example to solidify the point:
    Ice cream sales is correlated with homicides in New York (Study)
    As the sales of ice cream rise and fall, so do the number of homicides.
    Does the consumption of ice cream cause the death of the people?
    No.
    Two things are correlated doesn’t mean one causes other.

    Correlation does not mean causality or in this example, ice cream is not causing the death of people.

    https://slate.com/news-and-politics/2013/07/warm-weather-homicide-rates-when-ice-cream-sales-rise-homicides-rise-coincidence.html

    1. 1

      I've read a really good article regarding this. The mathematical term is spurious correlation and it's widely considered in statistics.

      https://medium.com/message/that-catcalling-video-and-why-research-methods-is-such-an-exciting-topic-really-32223ac9c9e8

    2. 1

      I'm not assuming correlation!

      If anything, I'm illustrating that effort and revenue are probably not correlated.

      What I'm inquiring about here is this:

      "What variable(s) do you think correlate with positive business outcomes?"

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        I am pointing out the fallacy of the underlying premise of the question.

        You might think that Effort != Compensation but the question you posed has a premise which some people might initially agree with (that maybe Effort SHOULD approximate compensation).

        In fact the variables probably ARE correlated (Something that is harder to do, is likely to be more expensive) but that doesn't mean that there is causation implied.

        1. 1

          Sorry (and it's probably me) but I don't understand the point you're trying to make.

          How do see the premise of my additional question; and what's the fallacy?

  4. 2

    Why do you assume effort and revenue should be correlated?

    1. 1

      I'm not assuming that at all. I'm making an observation:

      • Two entrepreneurs can put in the same amount of effort
      • Even with the same amount of effort, they can have very different results.

      In many ways, I'm illustrating that effort and revenue are probably not correlated. 😉

      What I'm inquiring about here is this:

      "What variable(s) do correlate with positive business outcomes?"

  5. 2
    • Community around the maker (For exampe @levelsio)
    • Product-market fit
  6. 2

    Product-market fit
    Personality
    Luck
    Contacts

  7. 1
    • market
    • smart work vs hard work
    • stage of your company
    • unlimited reasons
  8. 1

    Echoing what @csallen said. But I think this also relates to what Naval once said:
    "store owner is working any less hard than Elon Musk".

    A lot of times it comes to what is actually valuable and of course the leverage (also plays a big part).

  9. 1

    Effort can be seen as static, where as things like your network, where you grew up, and even what resources you have access to could have more of a multiplier effect. There’s also the obvious things like market size, the solution, etc...

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    This comment was deleted 2 months ago.